Northern exposure?

Davit Akman and John Norman suggest that a recently commenced investigation into alleged “product switching” and statements by the Interim Commissioner show that the pharmaceutical industry may now be squarely on the Canadian Competition Bureau’s enforcement agenda.

In comparison to the United States, there has been little antitrust enforcement activity in the pharmaceutical industry in Canada. However, a recently disclosed investigation by the Canadian Competition Bureau into whether a temporary disruption by an innovative pharmaceutical company of the supply of an older version of one of its drugs, for which the

patent was shortly to expire, violated the abuse of dominance provision in section 79 of the Canadian Competition Act, and recent statements by the Interim Commissioner of Competition, suggest that the pharmaceutical industry may now be squarely on the Bureau’s enforcement agenda.

Aggressive antitrust enforcement in US

Aggressive enforcement of US federal antitrust laws in the health-care sector has been a top priority of the Federal Trade Commission (FTC) for many years. One of the highest priorities in this area has been what the FTC terms “pay-for-delay” or “reverse payment” patent litigation settlements between innovative and generic pharmaceutical companies.1 The impugned settlements involve monetary payments (or other consideration) by the innovative company in return for the generic company’s agreement not to enter the market until a specified date, commonly prior to the end of the relevant patent term. The FTC argues that such settlements, which it claims significantly and improperly delay generic entry and therefore harm competition, should be treated as presumptively anti-competitive and unlawful under section 5 of the Federal Trade Commission Act and section 1 of the Sherman Act. However, most US appellate courts have disagreed, dismissing challenges (by both the FTC and private plaintiffs) to alleged “pay-for-delay” patent settlements, holding that such settlements are per se legal under US federal antitrust laws provided that they do not extend the life of the patent in issue or include other products not covered by the patent, and provided that the underlying patent litigation was not a sham and the patent was not obtained by fraud.2 The United States Supreme Court is expected to conclusively determine this issue in an appeal arising from an unsuccessful FTC challenge which, at the time of writing, was scheduled to be heard on 25 March 2013.3 The FTC has also devoted a great deal of time and resources to so-called “product switching” or “product hopping”.4 As described by the FTC, “product switching” or “product hopping” refers to strategies allegedly engaged in by innovative drug manufacturers to switch demand in a market from a drug for which the underlying patent(s) will soon expire (by, for example, limiting supply or raising prices for the old product) to a new product which enjoys on-going patent protection.5

Because under US substitution laws a generic drug must have, among other things, the same dosage and form as the reference brand product in order for pharmacists to be able to substitute it, moving demand to the new product for which there is no generic substitute may reduce demand for the generic entrant and make generic entry in respect of the old product infeasible.

The FTC contends that “product reformulations constitute an unlawful means of preserving monopoly power in violation of

Section 2 of the Sherman Act”.6 For their part, the innovative drug companies respond (rightly in the authors’ view) that “[e]very manufacturer that introduces a new drug seeks to ‘switch’ customers to the new product. This switching is called competition”.7 This is both an evident and an entirely understandable commercial strategy. Notably, to date, only one “product hopping” case has survived summary dismissal at the pleadings stage, and this claim has not yet been tested on the merits.

A different approach in Canada

In Canada, by contrast, there has been no similar enforcement activity by the Competition Bureau and uncertainty as to whether the Bureau considers the Competition Act (the principal competition law statute in Canada) to be the appropriate vehicle for addressing complaints about alleged misuses of Canada’s drug patent laws. For example, in June 2003, following a complaint from the National Union of Public and General Employees, the Bureau commenced an inquiry into whether by adding new patents to the patent register for certain drugs innovative pharmaceutical companies had contravened

the Competition Act. The complaint alleged that the filing of new submissions or addition of new patents, termed “evergreening” by the complainant, were unlawfully delaying generic entry, contrary to the Competition Act.

In order to market a generic version of a product, a generic drug company must obtain a Notice of Compliance (NOC) from

Health Canada. To this end, the generic must demonstrate its drug’s bioequivalence to the reference brand product and, pursuant to the Patented Medicines (Notice of Compliance) Regulations, SOR/93-133 (the NOC Regulations), show that its product does not infringe any valid patents associated with the reference product. At the time of the complaint in 2003, and until 2006, the NOC Regulations required a generic drug company to address all patents on the patent register with respect to the reference drug in issue before an NOC could be issued, including any patents added after filing by the generic of its Abbreviated New Drug Submission (ANDS) purporting to demonstrate the bioequivalence of its drug to the reference brand product. Amendments to the NOC Regulations in 2006 modified that requirement, with the result that a generic now need only address patents listed on the register prior to the filing of its ANDS with Health Canada.8 In February 2004, the Bureau discontinued its inquiry. In explaining this outcome, the Bureau observed, among other things, that “[t]he NOC Regulations contain specific provisions to address and balance the competitive interests of brand name pharmaceutical patent holders and generic drug manufacturers and to remedy the practice raised in the….click here to subscribe and read the whole article

Résumé

Davit Akman, Gowling Lafleur Henderson LLP

Davit is a partner in Gowlings’ Toronto office. He specializes in competition/antitrust, commercial and class action litigation. His experience includes acting as counsel on the leading abuse of dominance case in Canada, acting as counsel in connection with high-profile antitrust investigations and in international and domestic competition class actions before various courts, and representing the Commissioner of Competition in the first price maintenance case heard by the Canadian Competition Tribunal. He recently appeared as counsel before the Supreme Court of Canada on appeals which could introduce important and dramatic developments in the evolution of competition class actions in Canada, including by potentially barring all indirect purchaser class actions. Davit was named one of the “Litigation Lawyers to Watch” in Canada by Lexpert in its 2011 Guide to the Leading US/Canada Cross-Border Litigation Lawyers in Canada, and one of the Lexpert “Rising Stars: Leading Lawyers Under 40”.

John Norman PhD, Gowling Lafleur Henderson LLP

John is a partner with Gowlings’ Intellectual Property Department in Ottawa. He has a Ph.D. in biochemistry and has extensive experience with patent portfolio management and litigation. John works mostly with leading pharmaceutical, biotechnology and technology companies and appears on behalf of clients before the Federal Court of Canada, the Federal Court of Appeal and the Supreme Court of Canada. Specifically, he focuses on matters relating to pharmaceutical regulations and patent litigation, including patent infringement actions, patent impeachment actions and proceedings under the Patented Medicine (Notice of Compliance) Regulations. He is a frequent speaker and writer on pharmaceutical and technology patent litigation matters and is a media spokesperson and recognized leading industry expert on patent issues.

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